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A Reminder on the Windfall Elimination Provision

By Richard Cohee

A number of years ago, the City of Jacksonville opted out of Social Security. As a result, members of the City’s Retirement System did not contribute to the Social Security System during their period of service with the City. Upon retirement from the City, many former members of the City Retirement System began second careers with employers whose employment was covered under Social Security. In many instances such second career employment extended over a period of 10 years or more, thereby qualifying the individual for Social Security benefits as well as City retirement benefits.

From the perspective of the Federal Government, these dual retirement benefits represent a windfall to the former government worker. As a means of addressing this concern, Congress passed legislation in 1983 that is known as the “Windfall Elimination Provision”. This provision acts to reduce the amount of Social Security benefits otherwise distributed to certain public employment workers. Members who are approaching Social Security age should therefore make sure that they are fully aware of this provision and the impact that it will have upon their Social Security benefits.  Unfortunately, many members first discover the significant impact of this provision at the time that they make application for Social Security benefits. Some members come to the realization that their plans for taking early Social Security benefits at age 62 are not feasible. Others are forced to continue working past age 65 in order to reach their retirement goals. In view of these considerations we felt that every member should be reminded as to this provision since many will be reaching Social Security age in the near future.

Social Security benefits are based upon a worker’s average monthly earnings adjusted for inflation. The average earnings determination is separated into three amounts and each amount is multiplied by a different percentage factor. For example, for a worker who turns 62 in 2008, the first $711 of average monthly earnings is multiplied by 90%; the next $3,577 is multiplied by 32%; and the remainder is multiplied by 15%. Members of the City Retirement System who are subject to the “Windfall Elimination Provision” would have the 90% factor described above reduced to 40%. This translates into a monthly benefit loss of $355.50 ($711 x 50%). Please note that these measures are adjusted annually. For instance, the 90% measure was previously applied to the first $592 for individuals turning 62 in 2002.

As a means of better communicating these provisions, let us consider the example of an individual who is approaching age 62 and is contemplating retirement in 2008. Our sample individual became employed by the City of Jacksonville in 1974 and retired from the City with 21 years of service in 1995, whereupon he started a second career where he has paid into Social Security for a total of 13 years, thereby qualifying the individual for Social Security benefits. In our example, let us further assume that the individual earned a salary while paying into Social Security that produced an indexed monthly earnings average of $1,100.00. Under normal conditions, this $1,100.00 average would be applied to the standard formula which is shown as follows:

First $711 @ 90% ($711 x .90)  =          $639.90

            Next $3,577 @ 32% ($389 x .32)           =            124.48

            Above $4,288 @ 15% ($0 x .15)            =                0.00

            Normal Monthly Social Security Benefit$764.38

 However, since the individual earned a pension from a job not covered under Social Security, he will have his Social Security benefits calculated under the following modified method.

             First $711 @ 40% ($711 x .40)  =          $284.40

            Next $3,577 @ 32% ($389 x .32)           =            124.48

            Above $4,288 @ 15% ($0 x .15)            =                0.00

            Normal Monthly Social Security Benefit$408.88

 As can be seen from this example, the “Windfall Elimination Provision” causes the City retiree to absorb a loss of $355.50 ($764.30 minus $408.88) or a deduction of about 46% from the normal Social Security benefit. The “Windfall Elimination Provision” is viewed in many circles to be an unfair assessment against public employees. Similar assessments are not levied against individuals who receive private pensions or against those who enjoy lucrative stock option programs or matching 401-k’s. Assessments are also not levied against middle-aged immigrants who may only record 10 years of contributions before age 65. All of these individuals receive a full share of Social Security benefits.

 In spite of comparisons, Congress felt that it needed to protect the Federal Treasury from a perceived windfall for government workers who earned a pension from a job not covered under Social Security. Spirited attempts have been made in Congress in recent years to remove this penalty against government workers. However, none of these attempts have been successful to date. Current efforts in securing legislative relief must overcome the budgetary difficulties caused by a recessionary economy and a war on terrorism. Meanwhile, our members should asses their exposure to this highly important and misunderstood provision and undertake appropriate financial plans. Members should also be aware that the estimates of benefits that are periodically prepared by the Social Security Administration do not factor in any deductions attributable to the windfall elimination provision. Current estimates should therefore be reduced by $355.50 in order to more closely approximate the true level of benefits. You may learn more about the “Windfall Elimination Provision” by reviewing SSA Publication 05-10045, “A Pension from work not covered by Social Security”. You may also visit the Social Security website at or call 1-800-772-1213 for more information.